I personally do not know a whole lot about welding or other trades. My entire working life has been spent not working with my hands. But there is one company out there that probably knows more about welding than any other, and I came across the company as I was researching companies to present in one of my classes. I had heard of the company previously because of the rather large annual bonus it’s been paying to employees since the early 1930s, and it popped up on my radar again when it’s 2013 bonuses were covered in this article at The Motley Fool.
The company is Lincoln Electric, and they have an interesting story, which I’ll get to in a moment. However, the author of that article also wrote a book about the company called Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation. Frank Koller wrote a great book on Lincoln Electric’s culture, much of which I used when presenting to company for my class. We were unable to recommend purchasing the company for our real money portfolio*, but the research I did prompted me to read the book, and I was definitely glad that I did.
*If you want to check out our presentation and other materials, click here.
Lincoln Electric had pretty humble beginnings, and like a lot of companies started around the turn of the 20th century, they initially focused on the production of electric motors. Eventually, founder John C. Lincoln shifted the company’s focus to building machines for arc welding, and was initially ahead of the curve because most manufacturing at the time was done with riveting. They became something of the arc welding experts in a pre-World War II America, and literally wrote the book on arc welding – The Procedure Handbook of Arc Welding Design was first published in 1933 and has since sold more than two million copies through 13 editions. Though the company was great at welding and welding products, the true success in the company was in its treatment of employees.
As Spark goes into much better than I will here, the manufacturing world in the United States in the early 20th century was one where many companies guaranteed work and a living wage, and most of these companies were successful because employees were a part of the companies success. However, the Great Depression had a dramatic impact on a lot of the “welfare” companies that tried to guarantee employment, which caused them to go away from the model of helping employees. The American labor movement also had some impact, but on the outset of World War II, the companies practicing the welfare model had been drastically reduced.
Somehow, however, Lincoln electric managed to buck the trend. Though John Lincoln shared similar thoughts, it was when his brother James Lincoln took over as CEO that the company fully embraced its version of welfare capitalism. They established an Employee Advisory Board, which was a group of employees from various departments that met with management of the company every two weeks to discuss issues within the company, from the latest changes to the dress code to serious matters like insurance options and work rules. The EAB started in 1915 and has met every two weeks to this day.
James Lincoln also introduced one of the first employee stock ownership plans in the country in 1925, and began paying an annual incentive bonus in 1934. But perhaps the biggest part of what makes Lincoln unique is its guaranteed employment promise, something that was formally adopted in 1958 but had been around unofficially since the 1930s. The promise guarantees employees at least 32 hours of work regardless of the economic conditions, as long as the employees meet certain requirements. Because of this promise, Lincoln has not had to lay off any employees for economic reasons since 1958, even if it means that sometimes employees are painting factory walls during economic downturns.
Koller points out in his book pretty clearly that Lincoln’s employment practices are one of the main reasons the company has been so successful for nearly 120 years. Employees know that they have to work hard to receive their yearly bonus, but they also know that working hard and making the company perform well increases said bonus. And because they are always guaranteed to be working, other parts of their lives are better and more stable, which in turn tends to make them some of the most content people around, at least according to a lot of the employee interviews in the book.
Ultimately, the point of the book is that it would be difficult for a company to shift to a guaranteed employment plan like one at Lincoln, especially if they are publicly traded. With a focus on quarterly performance, many companies think that guaranteeing employment removes some ability to control costs and whatnot depending on the current state of the economy. Nevertheless, Lincoln Electric has proven that is not necessarily the case, though I do agree that it would take a dramatic cultural shift at all levels of the company to really make a change like this stick long-term at a company that didn’t have a history of doing it.
If you want to read a book that is a little different from most business books out there, I suggest that you give Spark a chance. Not only will you get a great look at a great company like Lincoln Electric, but you also get a brief look at labor history in the United States and a new perspective on how to view businesses. If I even run a moderately successful business where some of the Lincoln Electric principles would work well, I definitely would have to consider doing so now. Its success speaks for itself, and Spark is a great book that illustrates this.